Chapter 23 — Key Takeaways
Three numbers, three kinds of thing
| Kind | Computable? | ||
|---|---|---|---|
| Medicare allowed | \$96.52 | an EQUATION from public inputs | Yes — two lines |
| Northfield allowed | \$128.40 | a CONTRACT | No — you read it |
| Northgate's charge | \$185.00 | a DECISION, adjusted since | No — and nobody can |
Only one is derivable, and it is the one nobody looks up. Commercial contracts are written against it, so you cannot evaluate a contract you cannot price and you cannot detect an underpayment without knowing what was owed.
RVUs
| Work | the physician's time, skill, effort, judgment, stress. Also a productivity measure |
| Practice expense | overhead — two values: facility and non-facility |
| Malpractice | liability. Smallest, and the most geographically variable |
RVUs are DETERMINED, not measured: a specialty society survey → a multispecialty committee recommendation → CMS accepts, modifies, or rejects. Comparative judgments. "Potentially misvalued" codes get revisited — which is how RVUs go DOWN.
The formula
[(work × work GPCI) + (PE × PE GPCI) + (MP × MP GPCI)] × CONVERSION FACTOR
99214:
work 1.92 × 1.000 = 1.92000
PE 0.89 × 1.008 = 0.89712
MP 0.13 × 1.005 = 0.13065
─────────
2.94777 × $32.7442 = $96.52
Two steps, always. Adjust each component by its own GPCI, sum, then multiply. Summing first gives a wrong answer that looks right.
GPCIs: 1.000 = national average. They adjust cost, not value.
The conversion factor is ONE national number, so one lever moves every payment — which is why it is fought over annually. Budget neutrality keeps the RVU pool essentially fixed: revaluing one specialty's codes reduces everyone else's, and a code whose RVUs rose may still pay less.
The annual cycle: proposed rule in summer with a comment period → final rule around November → effective January 1. (The third open public process in this book, after LCD development and NCD reconsideration — and almost nobody participates in any of them.)
Site of service
The differential lives entirely in the practice expense RVU. Facility pays the physician less because the facility supplied the overhead and bills separately — Chapter 16 §16.1's two claims, from the payment side.
| Pays | ||
|---|---|---|
| 11 | Office | non-facility |
| 19 | Off-campus outpatient hospital | facility |
| 21 | Inpatient hospital | facility |
| 22 | On-campus outpatient hospital | facility |
| 23 | Emergency department | facility |
| 24 | Ambulatory surgical center | facility |
11 versus 22 costs organizations the most. An acquired practice converted to provider-based changes to 22, and one still submitting 11 is reporting a setting that no longer exists.
A wrong place of service produces a wrong payment on an otherwise perfect claim, and it does not deny. Office→facility is an underpayment; facility→office is an overpayment with a sixty-day clock.
Pricing a contract
The blended rate is 128.55% — and NOT ONE LINE is at 128.55%.
| Code | Medicare | Northfield | % |
|---|---|---|---|
| 99214 | 96.52 | 128.40 | 133.03% |
| 20610 | 63.28 | 78.60 | 124.21% |
| J1030 | 5.44 | 6.28 | 115.44% |
| 36415 | 3.00 | 3.00 | 100.00% |
| Total | 168.24 | 216.28 | 128.55% |
Your realized percentage depends on your SERVICE MIX. The same contract is a different contract for a different practice. To evaluate an offer: price your own top twenty codes, compute each percentage, weight by volume. An afternoon, and almost nobody does it.
Charges
THE ONE RULE
A charge below the allowed amount CAPS the payment at the charge. Payers pay the lesser of billed and allowed. Everything else is policy.
A low charge is not generous — the patient's share comes from the allowed amount, not the charge. A high charge does not increase contracted payment; it inflates the gross collection rate's denominator and sets what an uninsured patient is asked for.
A stated method: price your Medicare schedule → find your highest contracted rate per code → one multiple of Medicare that clears it → apply the SAME multiple to every code → review annually → write it down, with a date and an owner.
"Raise everything 3%" preserves every existing distortion. Northgate's four lines sit at 192%, 237%, 331%, and 467% of Medicare.
Charges should be UNIFORM. Permitted anyway, under a written and consistently applied policy: self-pay discounts · financial assistance · prompt-pay discounts. Not permitted: routinely waiving patient cost-sharing, or tuning charges per payer.
The chargemaster
Tens of thousands of lines · items as well as services · NO SINGLE OWNER.
It decays through: terminated codes still in the file · dead items · across-the-board adjustments · lines that were never payable (A4550).
And it is public. Price transparency requires a machine-readable file of standard charges — including payer-specific negotiated rates — and a consumer display of shoppable services. Other organizations' contracts can now be priced.
For the uninsured, the chargemaster IS the bill — which is what financial assistance policies, discounted cash prices, and good faith estimates exist to address.
Charge capture
Lost: never entered · never interfaced · after the cycle closed · wrong account · removed by a rule.
A lost charge is the only failure in this book with NO EVIDENCE AT ALL.
No claim, no denial, no queue item, no report line. Detection must come from OUTSIDE the billing system.
Four reconciliations: schedule → charges · signed notes → charges (ONE JOIN — build this first) · clinical logs → charges · supply and pharmacy usage → charges.
Collection rates
GROSS = payments ÷ CHARGES
► denominator is ARBITRARY. Double your charges,
halve your gross rate, change nothing.
NET = payments ÷ what you were ENTITLED to collect
► the real one
A SILENT UNDERPAYMENT IMPROVES YOUR NET COLLECTION RATE.
The shortfall leaves the denominator as a contractual adjustment. The worse it gets, the better the number looks.
And lost charges and undercoding are invisible to both, because they never enter either figure.
The net rate measures how well you convert entitled revenue into received revenue — a real and important thing. What it cannot see is whether the entitlement was right:
| Question | Measured by |
|---|---|
| Did we bill everything? | charge capture reconciliation (§23.9) |
| Did we bill it correctly? | coding audit (Ch. 37) |
| Were we paid what the contract required? | underpayment comparison (Ch. 28 §28.8) |
The mistake is not reporting the net collection rate. It is reporting it as a report card for the whole revenue cycle.
Key terms
RVU · work / practice expense / malpractice RVU · GPCI · conversion factor · Medicare Physician Fee Schedule · budget neutrality · potentially misvalued code · site of service differential · place of service code · chargemaster · charge capture · price transparency requirements · good faith estimate · charge uniformity · gross and net collection rate · percentage of Medicare
Monday morning
You should be able to:
- Price a code from public inputs, in two steps, without a calculator app.
- Look up facility versus non-facility and know which your setting is.
- Price your own contract per code and weight it by volume.
- State the one charge rule and why a low charge helps nobody.
- Run a signed-note-with-no-charge query.
- Report the net collection rate with three other numbers beside it.
The Encounter — Q6, the last open question, CLOSED.
Why \$185.00?
Nobody at Northgate can derive it.
A historical artifact from a fee-schedule reference product, increased since by across-the-board adjustments, never re-derived against anything. Not a multiple of Medicare — 191.67% here, against 237%, 331%, and 467% on the other three lines.
And it is doing its one essential job by accident: \$185.00 is above Northfield's \$128.40 and Medicare's \$96.52, so it caps nothing.
That is genuinely the situation in most practices in the country, and it is a finding rather than a scandal. A practice that wants a better answer needs a stated method — and the fact that it does not have one is the honest answer to the question the book has been carrying since Chapter 2.